The problem with understanding the effects of globalisation on inequality is the information being used and how it is interperted. Branko Milanović gives some insight into trends and how they are and can be explained.
Branko Milanović is an economist specialised in development and inequality.
Cross-posted from Branko´s blog globalinequality
To think correctly about globalization one needs to think of it in historical context. This means seeing today’s globalization and its effects, positive and negative, as in many ways a mirror-replay of the first globalization that took place from the mid-19th century to the First World War.
That globalization, underpinned by the Industrial Revolution in Western Europe, transformed the economic map of the world by making Europe much richer and politically and militarily more powerful than any other part of the world. It allowed European countries, and later the United States, to conquer most of Africa and significant parts of Asia, which even when they were not formally ruled by Westerners were subjected to their strong influence in terms of economic policy (opening to trade, control of custom revenues), or even juridical extraterritoriality for European citizens.
Advanced European countries became much richer, so that by 1914 the ratio of per capita income, according to the Maddison project database, between the UK and China was 8 to 1 compared to 3 to 1 one century earlier. (The figure below shows the reverse of this ratio: Chinese, Indian and Indonesian GDP per capita as percent of comparable West European GDPs per capita. It thus highlights the recent rise of Asian countries.) Moreover, the fruits of industrialization and globalization began to be spread across Western countries’ income distributions thus making even the poor people there richer than almost all Africans and most Asians. European dominance allowed it to “export” its surplus population and to blunt the edge of the incipient class conflict.
This very short sketch of the well-known effects of the first globalization allows us to remind ourselves of both its positive and negative sides: huge technological progress as against exploitation, increased incomes for many vs. grinding poverty and exclusion for others, European mastery of the world vs. a colonial status of Africa and much of Asia.
In what ways should it inform our thinking about the current globalization? First, in making us realize that broad historical movements cannot bring only benefits to everybody. Some will inevitably lose, others gains; and at times the loss of some is a condition for the gain of others. Second, thinking of the past enables us to see how the current globalization is in many respects a mirror-image of the first—but shorn of its more brutal effects of conquest and exploitation.
Today’s globalization represents a rebalancing of the world, where Asian incomes, not as in the past, only in a few countries like Japan, South Korea or Taiwan, but in the giants such as China, India, and Indonesia, as well as in populous countries like Vietnam and Thailand, are catching up with Western incomes. The graph shows this rebound to have started in the 1980s, with Dengist reforms in China and Indian abandonment of socialist policies.
China’s and India’s GDP per capita as percentage of that of the United Kingdom (and Indonesia’s GDP per capita as percentage of that of the Netherlands), 1820-2017
The rebound brings the Eurasian continent (which we can “extend” to include North America) in terms of relative incomes and distribution of economic activity to the situation that existed prior to the Industrial Revolution, when parts of Asia (mostly in China and India) had approximately the same income levels as the more advanced parts of Western Europe. When Marco Polo travelled to China in the 13th century he admired canals, bridges and markets of Hangzhou; there was no marked difference in income or technological know-how between Venice and Hangzhou. All of that changed in the next several centuries as the West pulled ahead of everybody else. But it is now in the process of changing again, and bringing the world to the income relativities of the past—of course at much higher level of absolute income.
How can we then judge the shadows and lights of globalization? In relative geo-economic terms, by noting that it is a gain for Asia, and a relative loss for the West. It is thus exactly the mirror-image of the first globalization. But, perhaps more importantly we can look at shadows and lights of globalization by realizing that many highly desirable features of globalization: increased average real income, significant reduction in global poverty, extended life expectancy, higher average level of education, better access to electricity, sewage and potable water, are being accompanied—like in all great transformations—by some undesirable features: environmental destruction, commodification of activities that have hitherto been provided by family and friends, stress and loneliness and even numerous social pathologies (drug abuse, corruption, terrorism).
Even such a listing of “positives” and “negatives” is not merely incomplete; it compares the averages: the average life expectancy, the average income level etc. which may not be very relevant. With rising inequalities in most countries in the world, such averages carry less and less meaning. In an unequal or polarized society, the fact that the mean income is up, may not be at all reflective of the changes experienced by the rich (whose real incomes might have increased by much more), or by the poor (whose real incomes might have stagnated).
This is why we often feel a strong tension between what supporters of globalization tell us are its unambiguous favorable effects and frequent disappointment or unhappiness voiced by many. The average numbers, even when accurate, mean less in an unequal world, where additionally globalization allows us to compare our incomes, access to public services, hours of leisure, stability of friendships, happiness etc. across national borders. Even when doing “objectively” well, we are bound to find many people among the 7.4 billion in the world who are richer or happier than us. In that way, objective advances of globalization are, almost by definition, accompanied by subjective feeling of unfulfillment. If we understand the process whereby this occurs, it might make it easier to accept this fundamental duality—in-built perhaps in human condition.